Safety Excellence by Design—Integrated Risk Management

This article looks at the risk of injury to an organization's employees, and ways to avoid that outcome. It will also provide the risk manager a better understanding of the core drivers of these losses. Part 2 outlines some tools and techniques with which to assess the effectiveness of the safety management process.

Every business faces the possibility of accidental loss of property, income,
liability, and injury to its employees. Risk management professionals are responsible
for managing these risks. Those of us who are in the risk management business
know all about exposure avoidance, loss prevention, loss reduction, segregation,
and contractual transfer—to name a few. When it comes to managing the risk associated
with employee safety, the risk manager usually looks to the safety department
or safety manager to address that area.

Traditionally, safety management meant complying with the governing safety
standards as promulgated by the state or federal jurisdiction. From this flows
safety programs, processes, and procedures designed to meet the requirements
of these regulations. Most safety programs are about the prevention of injury
and/or illness to the organizations employees. The basis for this effort is
the safety program. The safety program starts off with a statement professing
to value the employee and wanting to provide them with an injury free workplace
(no one will argue with that!). The body of this program usually is a regurgitation
of safety standards. Some of the more developed programs may also include specialized
subprograms dealing with driving for the company, substance abuse, work practices,
etc.

The basic structure of most safety programs goes back to the three Es: engineering
solutions, education, and enforcement. This structure was created by the National
Safety Council as a simplification of H.W. Heinrich's 10 axioms for safety management.
Virtually all safety standards fall into one of these categories. The engineering
solutions address the physical conditions and the protection of employees from
exposure to hazards in their physical environment. Education deals with providing
the employee with training about the standards and the use of the protective
system. And enforcement deals with site inspections and getting the workers
to comply with the safety standards.

There is a downside to all of this—most incidents that may cause employee
injury do not come from the physical environment, but from the actions of the
employees. A research study of thousands of accidents completed in Heinrich's
time (1930s) found that:

88 percent of injuries resulted from actions of employees;

10 percent of the accidents were traced to causes from the physical
environment; and

for 2 percent of the accidents, the cause could not be ascertained.

So the traditional safety program's emphasis on conditions does not focus
on the behavior of the employees and therefore has limited impact on controlling
the cost of risk! More recent thinking, which will be addressed later, is that
ultimately, the greatest driver of incidents, injuries, and losses are the systems,
climate, and culture of the organization.

Traditional Safety Program Shortfalls

A recent study by the University of Tennessee of a large population of contractors
indicated that approximately 6-7 percent of the estimated cost of construction
went into insurance-related expenses and costs. These same contractors reported
a 1.5 percent profit from their operations. It would seem rather obvious that
even a small reduction in the insurance expenses and/or cost would significantly
improve these contractors' profit picture. Though contractors understood this,
they did not have a clear picture of how to go about changing this reality.

The other shortcoming of traditional safety management, in general, deals
with metrics. Presently, performance is measured by how many incidents occur
over a period of a year, with the two major measures dealing with frequency
and severity of the incidents. These numbers are then compared to industry averages
published by the Bureau of Labor Statistics. These metrics are outcome measures
(historical), with the organizational metrics being compared to a mediocre standard.
Also, these metrics do not provide real-time information with which to manage.
They do not tell you what needs correction, and more importantly they do not
assist in strategy deployment.

The lack of safety performances is a symptom of a failure in the organization's
management system! So a paradigm shift is in order. Organizations need to look
at safety holistically, as an integral part of the organization's policies procedures
and operations, and not as an independent function. If the organization is serious
about keeping its employees' injury free, then they not only need to look at
the employee, but also the physical environment, the human dynamics, the systems,
as well as the organizational culture, and climate. All of these in one way
or another influence the decisions the employee makes which sometimes leads
to an incident, injury, or loss.

Typically, strategies to improve safety performance start with a review of
past losses. This analysis then establishes the interventions for the coming
year. These interventions usually consist of more training, emphasis of certain
program elements, or more rigorous inspections. In the short term, some improvement
is inevitable, but in the long run, the results never live up to expectations.
Some of this is because the improvement strategy is based on history and the
future is never exactly the same. The data analyzed, may not give a true picture
of all the contributing causes. The focus is on the worker and not on the system
and culture.

Performance Management

Having established that safety performance management requires some major
structural changes, let us look at how performance is managed in the rest of
the business.

Up to the early 1990s, business was also managed predominantly by one set
of metrics—financial. Traditional financial measures did not provide management
with the information they required to meet the challenges of the changing business
environment. Not only did financial metrics not provide them with a true measure
of performance, but also did not help them in managing effectively. This started
the quest for a "better" measurement system.

The first of the organizational scorecard concepts, the Balanced Scorecard
(BSC), was introduced in 1992 by R.S. Kaplan and D.P. Norton. This spawned many
different scorecards, which are in use by many of the Fortune 1000 companies
in one way or another. The need for a better mechanism to manage the business
became necessary because of a change in our economy. We are moving increasingly
from a predominantly manufacturing to a service industry economy. There are
also globalization influences as well as increasing customer demands, escalating
competition, and time compression. Everything has to be "faster, cheaper, and
better."

Dr. Kaplan maintains that, "In the same way that you can not fly an airplane
with just one instrument gauge, you can't manage a company with just one kind
of performance measure." The BSC technique still utilizes the financial "outcome"
measures that have served business well for hundreds of years—but complement
it with operational measures that look at different aspects of the organization
at the same time and allow managers to successfully manage. The balanced scorecard
groups metrics into four critical groups, or perspectives:

The customer perspective

The internal business perspective

The innovation and learning perspective

The financial perspective

The Balanced Scorecard

Central to management is the question of what are we trying to accomplish,
what is our vision, our picture of a future state. Once that is stated, we must
ask what differentiating activities do we have to engage in to turn that future
state into reality? That is our strategy. The next step is to establish objectives
for how we are going to get there. And, of course, we will need measures and
targets to tell us how we are doing. Part 2 deals
with these measures.

---, "The Having Trouble with Your Strategy? Then Map It." Harvard Business Review (Sept.—Oct. 2000):
3-11.

Note: The illustrations,
instructions, and principles contained in the material are general in scope
and, to the best of our knowledge, current at the time of publication. No attempt
has been made to interpret any referenced codes, standards, regulations, principles,
or concept. All of this information is public knowledge, and readily available
in books and trade journals.

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